SAN
CLEMENTE, Calif., January 7, 2010 -- Sunstone Hotel Investors, Inc.
(the "Company") (NYSE: SHO)
today provided an update on its recent operating performance,
acquisitions process, independent hotel management request for
proposals and finance transactions. The preliminary financial
information for the fiscal quarter and year ended December 31, 2009
reflects selected preliminary results from the Company's unaudited
financial statements, and is subject to customary adjustments that may
arise during the completion of the financial statement close process.

Arthur
Buser, President and Chief Executive Officer, stated, "On the
operations front, we are seeing a moderation in the decline of RevPAR,
and we continue to drive operational efficiencies throughout our
portfolio. With respect to acquisitions, we believe now is the
beginning of an optimal phase in the cycle for offense. Accordingly, we
continue to evaluate numerous potential opportunities to acquire
quality hotels at discount valuations. At the same time, we continue to
execute on various finance initiatives designed to reduce corporate
risk and provide capacity to capitalize on investment opportunities. We
are steadfast in our resolve to consistently do what's best for our
stockholders. Our objective is to outperform, and we believe that by
being nimble, well-capitalized and decisive we will continue to create
significant long-term stockholder value."

Operations
Update

RevPAR
information presented reflects the 26 hotel portfolio on a pro forma
basis. The 26 hotel portfolio excludes 13 hotels which, as described
more fully below, were, or are in the process of being, conveyed to
receivers pursuant to deed-back transactions.

(1) Includes the hotels owned by the Company as of December 31, 2009, excluding the W San Diego which has been deconsolidated and included in discontinued operations due to the transfer of possession and control of the hotel to a receiver on September 30, 2009. (2) Includes the hotels owned by the Company as of December 31, 2009, excluding the W San Diego and the Renaissance Westchester which have been deconsolidated and included in discontinued operations due to the transfer of possession and control of the hotels to receivers on September 30, 2009 and December 28, 2009, respectively, as well as the Marriott Ontario Airport and the 11 hotels included in the Mass Mutual portfolio, which have been reclassified to "operations held for non- sale disposition."

Acquisitions
Process

The
Company believes that the recent declines in demand for lodging and
continuing capital constraints may lead to opportunities to acquire
hotels at discount valuations. The Company is actively analyzing
various potential hotel acquisition opportunities, with prioritization
based on the following criteria:

Discount
Valuation: The Company is analyzing acquisition targets that are
expected to trade at a discount relative to the Company's current
enterprise value per key and/or EBITDA multiple.

Asset
Quality: The Company is analyzing opportunities to acquire upper
upscale, institutional quality assets which generate RevPAR in excess
of the Company's current RevPAR.

Value-Add
Opportunity: As the costs of construction, renovations, labor and
materials have declined from peak levels, the Company is evaluating
acquisitions where selective renovation/repositioning work may add
value.

Market
Concentration: Economies of scale, ownership efficiencies, improved
pricing power and staff sharing may be realized by owning multiple
hotels within the same market.

Outperforming
Markets: The Company seeks to invest in strong locations within markets
that are expected to outperform the U.S. average in terms of growth in
lodging demand.

Pipeline:
The Company is exploring preferred relationships with current owners of
hotel real estate who may look to divest of such real estate in the
future.

While
discount acquisition opportunities appear to be increasing in number,
there can be no assurances that the Company will be successful in
executing on its plan to acquire quality hotel assets at discount
valuations.

Independent
Hotel Management RFP

During
December, the Company issued a request for proposal ("RFP") from hotel
management companies interested in managing certain of its hotels
currently managed by Sunstone Hotel Properties, Inc., a division of
Interstate Hotels & Resorts, Inc. The purpose of the RFP is to
ensure that Sunstone has the most highly qualified management companies
operating its hotels in order to consistently deliver best in class
results. As changing management companies may be disruptive to hotel
operations, a change in managers will be made only if the Company
expects to achieve sustainable advantages as a result. The Company
expects to conclude the RFP process in the first quarter of 2010.

Secured
Debt Restructuring Program

During
2009 the Company initiated a secured debt restructuring program aimed
at addressing cash flow and value deficits among certain of its hotels
securing non-recourse mortgage debt. The primary goal of the program is
to amend the terms of mortgage debt to eliminate cash flow and / or
value deficits. In cases where acceptable restructuring terms cannot be
reached, rather than employing corporate resources to subsidize debt
service, the Company may elect to deed-back the collateral hotels in
satisfaction of the associated debt. During the fourth quarter, the
Company concluded negotiations with respect to three loans totaling
approximately $300.7 million and secured by 13 of the Company's hotels
comprised of 3,233 rooms. In each case, the Company did not reach
acceptable amendment terms with the respective lenders and the Company
now expects to deed-back the 13 hotels. The combined deed-backs are
expected to be meaningfully beneficial to the Company's credit profile,
debt maturity schedule, portfolio quality and growth profile. Each of
these three loans is discussed further below.

Renaissance Westchester. In August
2009, the Company elected to cease the subsidization of debt service on
the $29.2 million 4.98% non-recourse mortgage secured by the 347-room
Renaissance Westchester and commenced restructuring negotiations with
the loan's special servicer. In November 2009 the Company determined in
good faith that further negotiations would not be productive. Effective
December 28, 2009, possession and control of the Renaissance
Westchester was transferred to a court-appointed receiver. In
conjunction with this transfer, the Company will deconsolidate this
hotel and reclassify the assets and liabilities, including the hotel's
net book value of approximately $25.0 million and the hotel's $29.2
million mortgage indebtedness, to discontinued operations as of
December 31, 2009. Once title to the hotel is transferred, the Company
will record a gain on extinguishment of debt, and the net assets and
liabilities will be removed from the Company's balance sheets.

Marriott Ontario Airport. In
September 2009, the Company elected to cease the subsidization of debt
service on the $25.5 million 5.34% non-recourse mortgage secured by the
299-room Marriott Ontario Airport and commenced restructuring
negotiations with the loan's special servicer. In November 2009 the
Company determined in good faith that further negotiations would not be
productive. The Company is currently working with the special servicer
to transfer possession and control of the hotel to a court-appointed
receiver, and to ultimately convey the hotel to the lender in lieu of
repayment of the debt. Pending the appointment of a receiver, the
Company has reclassified the assets, liabilities and results of
operations of the Marriott Ontario Airport to "operations held for
non-sale disposition" on its balance sheets, statements of operations
and statements of cash flows. Upon the appointment of a receiver, the
assets and liabilities associated with the Marriott Ontario Airport
will be deconsolidated. As of December 31, 2009 the Marriott Ontario
Airport had a net book value of approximately $16.4 million.

Mass Mutual Portfolio. In July 2009,
the Company commenced restructuring negotiations with Massachusetts
Mutual Life Insurance Company, or Mass Mutual, the lender's
representative for a $246.0 million 5.95% non-recourse mortgage secured
by 11 of the Company's hotels comprised of 2,587 rooms. In November,
the Company elected to cease the subsidization of debt service on the
loan, and in December 2009 the Company determined in good faith that
further negotiations would not be productive. The 11 hotels securing
the Mass Mutual loan include the following:

The Company is currently working to transfer possession and control of
the hotels to a court-appointed receiver, and to ultimately convey the
hotels to the lender in lieu of repayment of the debt. Pending the
appointment of a receiver, the Company has reclassified the assets,
liabilities and results of operations of the Mass Mutual portfolio to
"operations held for non-sale disposition" on its balance sheets,
statements of operations and statements of cash flows. Upon the
appointment of a receiver, the assets and liabilities associated with
the Mass Mutual portfolio will be deconsolidated. In connection with
its year end closing process, the Company intends to record an
impairment loss of approximately $83 million in the fourth quarter to
reduce the net book value of the Mass Mutual portfolio to its estimated
fair market value of approximately $173.0 million.

Ken
Cruse, Chief Financial Officer, stated, "During the fourth quarter we
concluded restructuring negotiations on approximately $300.7 million of
non-recourse mortgage debt associated with 13 of our hotels, which
generated EBITDA of approximately $27.8 million in 2009. As we did not
reach acceptable amendment terms we intend to deed-back the hotels in
satisfaction of the debt, rather than commit additional corporate
resources to support these loans. We project cash flow from the
deed-back portfolio to be roughly equivalent to interest expense on the
associated debt in 2010, with necessary capital investment and
amortization which would have resulted in more than $40 million of
additional cash outflows. Moreover these combined deed-backs will be
beneficial to Sunstone's credit profile, debt maturity schedule,
overall portfolio quality and will improve our platform for growth. Pro
forma for the combined deed-backs, the weighted average term to
maturity of our debt is now 7 years and our total maturities through
2014 are now just $180.8 million, or less than half of our current cash
balance. With these three deed-backs, our secured debt restructuring
program will be substantially complete."

Business
Update Call

The
Company will host a conference call to discuss its operations update on
January 7, 2010, at 2 p.m. PST. A live web cast of the call will be
available via the Investor Relations section of the Company's website at www.sunstonehotels.com.
Alternatively, investors may dial 1-800-762-8779 (for domestic callers)
or 480-629-9771 (for international callers) with conference id
#4197871. A replay of the web cast will also be archived on the website.

About
Sunstone Hotel Investors, Inc.

Sunstone
Hotel Investors, Inc. ("Sunstone") is a lodging real estate investment
trust ("REIT") that, as of the date hereof, owns 38 hotels comprised of
13,199 rooms primarily in the upper-upscale segment. Sunstone's hotels
are generally operated under nationally recognized brands, such as
Marriott, Hilton, Hyatt, Fairmont and Starwood. Upon completion of the
appointment of a receiver for the Marriott Ontario Airport and Mass
Mutual portfolio, the Company will own 26 hotels comprised of 10,313
rooms. For further information, please visit Sunstone's website at
www.sunstonehotels.com.

Forward-Looking
Statements

This
press release contains forward-looking statements within the meaning of
federal securities laws and regulations. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "continue," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "should," "will" and
other similar terms and phrases, including references to assumptions
and forecasts of future results. Forward-looking statements are not
guarantees of future performance and involve known and unknown risks,
uncertainties and other factors that may cause the actual results to
differ materially from those anticipated at the time the
forward-looking statements are made. These risks include, but are not
limited to: volatility in the debt or equity markets affecting our
ability to acquire or sell hotel assets; national and local economic
and business conditions, including the current U.S. recession which may
be prolonged; the ability to maintain sufficient liquidity and our
access to capital markets; potential terrorist attacks, which would
affect occupancy rates at our hotels and the demand for hotel products
and services; operating risks associated with the hotel business; risks
associated with the level of our indebtedness and our ability to meet
covenants in our debt and equity agreements; relationships with
property managers and franchisors; our ability to maintain our
properties in a first-class manner, including meeting capital
expenditure requirements; our ability to compete effectively in areas
such as access, location, quality of accommodations and room rate
structures; changes in travel patterns, taxes and government
regulations, which influence or determine wages, prices, construction
procedures and costs; our ability to identify, successfully compete for
and complete acquisitions; the performance of hotels after they are
acquired; necessary capital expenditures and our ability to fund them
and complete them with minimum disruption; our ability to continue to
satisfy complex rules in order for us to qualify as a REIT for federal
income tax purposes; and other risks and uncertainties associated with
our business described in the Company's filings with the Securities and
Exchange Commission. Although the Company believes the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, it can give no assurance that the expectations will be
attained or that any deviation will not be material. Unless otherwise
noted, all forward-looking information in this release is as of January
7, 2010, and the Company undertakes no obligation to update any
forward-looking statement to conform the statement to actual results or
changes in the Company's expectations.